Journal of Agribusiness Marketing • Vol.Amin 4 (2011): Mahir 21-37et al. THE IMPACTS OF SUPERMARKETS AND HYPERMARKETS FROM THE PERSPECTIVES OF FRESH FRUIT AND VEGETABLE (FFV) WHOLESALERS AND RETAILERS Amin Mahir Abdullah* Fatimah Mohamad Arshad Ismail Abd Latif ABSTRACT The importance of the retail sector to economic growth has been very significant. The rapid growth of the sector is partly contributed by the emergence of supermarkets and hypermarkets that are mostly foreign- owned. This has raised some concerns by the local conventional retailers including fresh fruit and vegetable (FFV) retailers. The government has reacted to the concerns by introducing new guidelines to developing new hypermarkets in this country. This study investigates the impacts of these two types of retailers on local FFV wholesalers and retailers. Data from personal interviews with FFV retailers and wholesalers were analysed. Results of the analyses showed that supermarkets and hypermarkets did impose competition on conventional wholesalers and retailers. However, they have also brought some changes to FFV retail business, such as promoting quality products, and a better and a systematic marketing approach. Keywords: Fresh fruit, vegetable, supermarkets, hypermarkets, wholesalers, retailers INTRODUCTION Malaysia’s food retail industry has progressed rapidly in parallel to the changes in the developed economy that is, the growth of hypermarkets and retailers as the major retail centres for consumers to buy foods and consumer goods. This development is brought about by the globalisation process, in particular the free flow of capital between countries and enhanced by the Foreign Direct Investment policy of the country. This development, however, poses a challenge to the traditional distribution network. The new network demand’s fast and efficient delivery of high and consistent quality of farm produce and consumer-oriented marketing strategies. Prior to the emergence of hypermarkets, the marketing of fruits and vegetables was traditional and conventional in nature in terms of its organizational, structural and distributional networks. The marketing channel was characterised by a number of market *Faculty of Agriculture, University Putra Malaysia E-mail: [email protected] 20 21 The Impacts of Supermarkets and Hypermarkets from the Perspectives of Fresh Fruit and Vegetable (FFV) Wholesalers and Retailers intermediaries that resulted in high marketing and transactional costs. The producers were “isolated” from the “market centres” in the informational sense; therefore, market signals were not trickled down to farm levels. Hence, producers lagged market responsiveness. Consequently, farm produce suffered from problems of low quality and inconsistent supply. The development of supermarkets and hypermarkets has undoubtedly benefited consumers at large due to their better offerings, such as more product choices and services. As such, the numbers of consumers who are patronizing hypermarkets is at an increasing trend. Despite the rapid growth of these types of outlets, there are still consumers purchasing their fresh food products from the traditional stores. As shown in Figure 1, 28.8 percent of fresh food products are purchased from the traditional stores. This indicates that traditional retail outlets are still important in FFV marketing channel in Malaysia. Nevertheless, it is very unlikely that conventional stores will be able to bridge the pricing advantage and provide convenient and comfortable shopping environment as offered by these outlets. Source: Norsida et al. (2008) Figure 1: Consumers’ Purchase of Fresh Food Products at Various Retail Outlets (%) The gradual shifting of shopping venues from shop lots to supermarkets and hypermarkets by customers warrants new concerns among small or conventional retailers, especially in the urban areas. Losing customers means losing business and the survival of conventional retailers is at stake. In view of these developments and numerous complaints received from small retailers, as well as to provide some level of protection for the small retailers, the government has recently introduced new guidelines on the opening of new hypermarkets in an attempt to slow down their rapid growth. In 2009 and 2010, the government had capped the number of foreign hypermarket licenses at 107, but only 78 were in operation. However, the cap was lifted in 2011 when the government once again issued new licenses to foreign players (Ministry of Domestic Trade, Cooperatives and Consumerism, 2011). Therefore, the objective of this research is to present the development of both supermarkets and hypermarkets and their perceived competitive impact on FFV wholesalers and retailers in Malaysia. 22 23 Amin Mahir et al. LITERATURE REVIEW Like many countries in this region, Malaysia’s food retail environment has also undergone rapid changes since mid-1990s. Reardon , Timmer and Berdegue (2004) and Reardon et al. (2005) conceptualised that the diffusion of supermarkets in emerging markets was influenced by the demand for supermarket services by consumers and supply of supermarket services through investment by supermarket entrepreneurs. Demand forces include urbanisation, food prices, and increase in per capita income of consumers. Supply factors include Foreign Direct Investment (FDI) incentives, saturation, intense competition in home markets, and higher profits by investing in developing markets. These factors are parallel to the Malaysian environment, especially with regards to per capita income and FDI policy adopted by the government. Studies on the impact of large retailers to local markets were pioneered by Stone in 1997. He studied the impact of Wal-Mart stores on rural communities in Iowa. He found that there was resistance from the local merchants who feared the competition. Stone (1998) undertook a study on the effects of Wal-Mart on business in host towns in Iowa and found strong evidence on the effects of Wal-Mart on competing businesses. However, he also discovered that the per capita sale in towns with Wal-Mart had increased dramatically. David and Lundsten (2000) surveyed consumers in the Minneapolis-St. Paul metropolitan area to elicit reasons for their shopping in discount stores. Low prices, large variety, and unique items they could not find elsewhere were among the reasons. Reardon and Julio (2002) iterated that the procurement practices of supermarkets and large processors that emphasised on quality and safety standards, packing and packaging, cost, volumes, consistency, and payment practices have a big impact on, and are significant challenges for farmers and supply chains in Latin America. Suryadarma, Poesoro, Budiyati, Akhmadi and Rosfadhila (2007) measured the impact of supermarkets on traditional markets in Indonesia using econometric and qualitative analysis. The supermarkets had significant impact on the number of employees in traditional markets. Kaliappan, Alavi, Abdullah, and Zakaullah (2008) who studied the impact of foreign hypermarkets on local retailers in the Klang Valley, Malaysia, revealed that some businesses, especially complementary type of retail business had benefited while grocery stores were negatively affected by foreign hypermarkets. Uusitalo (2004) explored the competitive reactions of local, highly concentrated grocery markets towards the entrance of a foreign grocery retailer. The study used secondary data and information from newspaper, trade journals, internet sources, and official documents obtained on pre-entry actions of competitors and their operations during the first year of trading by the entrant. The study found that the most visible competitive consequences of the foreign grocery into Finland were the changes in the marketing mix variables, especially prices and product range. 22 23 The Impacts of Supermarkets and Hypermarkets from the Perspectives of Fresh Fruit and Vegetable (FFV) Wholesalers and Retailers METHODOLOGY To achieve insights on the development of supermarkets and hypermarkets, secondary data mostly obtained from Euromonitor International were used and presented in terms of charts to show growth and trends of the development. The impact of the supermarkets and hypermarkets perceived by FFV wholesalers and retailers was elucidated from surveys via personal interviews. Field surveys in six states in Peninsular Malaysia were carried out to gather all required information. Two layers of supply chain players were surveyed using different sets of standard questionnaires. A total of 117 wholesalers and 134 retailers were interviewed. Retail outlets involved in the interview were stalls in the wet markets, convenience stores, night markets and farmers’ markets, and roadside stalls. Data gathered from the survey were analysed by various descriptive analyses to describe the respondents’ characteristics and their perceptions towards the development of supermarkets and hypermarkets. Results of the analyses are presented in terms of frequency and percentage. Chi-square tests were carried out to test the relationships between competitiveness impact and the retailers’ and wholesalers’ perceptions toward the changes brought about by the supermarkets and hypermarkets. RESULTS Development of Supermarkets and Hypermarkets The rapid development in terms of number of outlets and sales in supermarkets and hypermarkets in Malaysia is shown in Figure 2 and Figure 3. The average growths in terms of number of outlets and sales for supermarkets from 2003 to 2008 are 2.1 percent and